I’m looking for advice on how to manage expenses in a new two-person partnership that is still in the planning stage. We expect there will be a difference in expenses for each partner. I’ll be managing the daily operations of an art gallery, while my partner will focus on handling artists and clients. My partner will likely incur more expenses for travel, meals, and gifts, while my expenses will be mainly for technology upgrades.
My idea was that the business should cover the usual operating costs, but the personal expenses like travel, meals, gifts, and tech upgrades should be considered as unreimbursed partnership expenses. I plan to speak with a CPA and lawyer about this, but I’d like to hear any suggestions or solutions from others here.
Is the issue that your partner wants to claim some unnecessary expenses as business-related? Or are they doing things that are actually necessary for the business, but you’re asking them to cover those costs themselves?
That sounds tricky. Are all the expenses they want to claim really business-related, or do you think some might cross over into personal expenses? For example, what kind of gifts are they planning to give as business expenses?
@Rex
Some of them are a bit questionable, like a subscription for champagne and a dinner here and there with a client friend. My partner has been running a gallery solo for 10 years and has gotten used to handling it all through the business.
@Rowan
The tricky part is that they can only deduct these as unreimbursed partnership expenses if your partnership agreement says that these aren’t reimbursable by the business. You might have to get specific about what counts as necessary business expenses, like ‘non-essential travel.’ Definitely check with a lawyer on how to word it to make sure the partnership isn’t stuck with the bill for personal costs.
“I’m planning to connect with a CPA (and lawyer) for guidance but wanted to hear any feedback or creative solutions that you have to offer on the best setup here.”
It sounds like you need to make sure your operating agreement spells out how to handle these expenses. Then, each partner can track their own expenses and claim them on Schedule E as unreimbursed partnership expenses. Just make sure you’re calculating everything correctly to avoid any issues down the line.
I think you might need to accept that the art world involves a lot of socializing, and these expenses are part of doing business. I also get the feeling there’s a lack of trust here. Why isn’t your partner still running the other gallery, and why are you concerned about them mixing personal and business expenses? There’s a trust issue you should address. By the way, who’s funding this new venture?
@Zane
Everything’s good on the trust side, and I get the social aspect of the business. I’ve been with them for 8 years as an employee, and in 2025, we’ll be partners.
Rowan said: @Zane
Everything’s good on the trust side, and I get the social aspect of the business. I’ve been with them for 8 years as an employee, and in 2025, we’ll be partners.
I can keep pushing on this or let it go, up to you. But you didn’t answer my questions. Why isn’t your partner running the other gallery anymore, and who’s financing this new one? I’ve been in business for 27 years, so I’ve seen a lot.
Expenses should be covered by the business, so it shouldn’t matter what your partner spends as long as it’s valid business-related expenses. If you’re operating as a partnership, there shouldn’t be any issue with imbalance in expenses. How you’re approaching this doesn’t sound like a typical partnership setup.